Updated: Jun 12
You know the story: the plodding tortoise wins a race against the sprightly hare by relentlessly trudging toward the finish line while the hare takes a nap. Shell Silverstein, grinding out the win. (That’s what I’d name a pet tortoise. That or DJ Slow Jams.) Let’s say the tortoise is bonds, the hare is stocks, and the nap is a market crash. Back to that in a moment.
After COVID hit the U.S in 2020 and the S&P 500 took a nap , er…, crashed 34%, there was a slew of articles published stating that 10-year bond returns were beating stock returns. The tortoise wins; it was ever thus!
Of course, from the bottom of the COVID crash through the end of 2021, the S&P 500 Index went up 113%. What was briefly true is now little more than a historical factoid, and there are no articles being written about the superiority of long-term bond investments v. stocks. But that’s hardly the point. The comparison is... poorly considered, shall we say?
Back to our fable. The tortoise wins for two simple reasons. The first is the widely-recognized moral of the story: cocky jerks get theirs eventually. (I’m pretty sure that’s the usual summation.) The second is that the race has a defined finish line. You’ll remember that the hare was far enough ahead that he thought a nap would be okay, and also that the hare almost catches up with the tortoise in the end. The tortoise just happened to be ahead at the finish line. At least the line was predetermined; bonds won by retroactively determining the length of the race and by declaring that – wait for it… NOW! – is the finish line.
Your long-term investments don’t have a knowable finish line. Even after your race is run, your money is going somewhere and probably to someone who will outlive you by many years. “The race” is longer than you will ever get to know, and over those unknowable distances the hare is likely to look like Edwin Moses over 400m. (Can you imagine the guy who finally beat Moses after 9 years, 9 months and 9 days of uninterrupted dominance being declared the winner over the last decade?)
When there is a known finish line for your investments – as when you will need a portion of your money in the near future to buy a car, pay for a wedding, buy a book of fables, or just to live on – bonds are great. They minimize the possibility of downward volatility right before you need the money, and you allocate that portion of your investments to bonds at that time for that specific reason.
My real problem with the “Bonds Win” articles is they set up an utterly false dichotomy between stocks and bonds, as though the only option is to own one or the other when, in reality, you can benefit from the best attributes of both. A hare is going to run, a hare is going to nap, and a tortoise probably won’t do much to surprise you. That’s a mix we can work with.
In fact, a good deal of our work is exactly that, dialing in your mix of stocks and bonds. If you or someone you know would like to check on your mix, please reach out to schedule a planning sessions or to arrange an introduction.
Kyle Swan, CFP®
Securities and advisory services offered through Mutual of Omaha Investor Services, Inc. Member FINRA/SIPC. Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company.
The Standard & Poor’s 500 Index (S&P 500) is a market capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. Investment involves risks, including possible loss of principal. Past performance does not guarantee future results. It is not possible to directly invest in an index.